Leasehold in Thailand
The lease (tenancy) agreement
Lease or rent of land, house or condominium for residential purpose by foreigners is governed by civil and commercial code sections 537 to 571. Foreigners are under Thai law allowed to lease real estate property for up to 30 years and the law is applied in the same manner if the lessee is a foreign or Thai national.
Lease term and registration of the lease agreement
A lease (rental) agreement exceeding 3 years must be registered with the local land office to be enforceable over 3 years. The lease must in any case be registered with the land deparetment within 3 years of signing and beginning of the agreement. Under the civil and commercial code the maximum lease term shall not be over 30 years. Any longer term in the contract to lease shall automatically be reduced back to 30 years (section 540). Also pre-signed or pre-agreed lease renewals are not accepted under Thai law and any agreed consecutive lease terms shall be deemed as part of one lease and reduced to 30 years (section 546). A lease may only be renewed upon expiration of the lease but it must not exceed thirty years from the time of renewal.
Legal aspects of lease and rental in Thailand
Characteristics of long term tenancies of land and/or house or apartment:
- A written rental or lease agreement is enforceable by legal action (a verbal agreement not);
- A rental or lease up to 3 years can be written in another language and does not need to be registered with the land department;
- A rental or lease agreement exceeding 3 years term must have a Thai script version registered with the land department;
- A lease agreement can only be registered over titled property (land with a proper title deed)
- A registered leasehold cannot exceed a term of 30 years, the term may be renewed after that, but renewal options are as mere personal contract promises not binding upon third parties such as successors;
- A lease agreement in essence creates for the lessee a personal right of use and possession and he can only sub-lease or sell (assign) his leasehold interest to another person if this is agreed in the lease agreement;
- A lease is under Thai hire of property laws automatically terminated upon death of the lessee, but not upon death of the owner (section 569);
- A lease registration fee (for registered leases exceeding 3 years) shall be collected at the rate of 1% of the total rental throughout the lease term and stamp duty shall be collected at the rate of 0.1%, also over the total rental throughout the lease term;
- A sublease, rental or lease income is subject to personal income tax.
In a leasehold purchase by a foreigner in Thailand the most complicated part of the transaction is the drafting of the terms and conditions and structuring the lease in a way that it offers the best protection for the foreign leasehold. The lease agreement must be drafted by an experienced property legal professional and include the necessary protection or the lease may not be enforceable throughout the term (e.g. terminated upon death of the lessee). There are various ways to draft a lease or hire of property agreement in Thailand, but generally the lease agreement must be written in Thai and comply with the civil code and land office guidelines. The lease with a foreigner must under these guidelines be will be examined by the land official before registration and can for example not include the right to transfer to freehold or prepaid additional lease terms in a renewal option.
A misunderstanding of lease or tenancy laws and how to structure a long term land (apartment) lease in Thailand often leads to the following errors:
- The lease agreement exceeding 3 years is not registered with the Land Department (therefore not enforceable by legal action for the period exceeding 3 years);
- The standard short form land office lease document is registered and not the lease agreement agreed between the parties;
- The long term lease concerns land and house where land and house could be separated (land lease and ownership of the building) leading to a stronger position of the lessee and preventing the yearly housing and land tax;
- The land does not have a proper title deed or is not suitable (or restricted) for building or has other legal problems or restrictions (this can be prevented by conducting due diligence prior to entering into a lease agreement);
- The lease agreement is poorly drafted and will end at death of the lessee, irrespective the term in the lease agreement.
Most problems can be prevented by proper planning, due diligence on the property and obtaining legal advice and assistance prior to signing any agreement or paying a deposit.
Long term land lease and building a house
In a long term leasehold interest in a real property by foreigners in Thailand the lease could be structured with ownership over the structures upon the land. It’s only the land part under the Land Code Act which is restricted for foreign ownership and not the building. The preferred legal structure in Thailand to obtain a long term interest in a property is a land lease with all options combined with a right of superficies or a separate sale of the building.
Housing and land tax
Thailand charges Building and Land Tax at the rate of 12.5% of the yearly rental according to the property lease agreement or the annual value assessed by the Land Department, whichever is higher over property that is not the primary residence of the owner (e.g. a second home or a property that is rented out by the owner). In case of a property (land AND house) owned by a company building and land tax must be paid by the company irrespective if rent is paid or income is received by the company from it.
Lease purchase in a residential housing development
In an official (licensed) property development the content of the freehold sale contracts under which the property is sold must comply with strict land and housing development and consumer protection laws. Selling land and house in the same development under a leasehold contract to foreigners does not have to comply with the same laws and the developer can, based on general freedom of contract, include various for him benificial clauses misleading clauses to generate sales, such as additional lease renewal terms suggesting a 90-year lease term, but which is under Thai hire of property laws enforceable by legal action as a 30-year lease only.
Specific rent and lease of commercial property
Commercial rentals are like residentail rentals governed by the civil and commercial code. Only to stimulate foreign investement the Thai government created a specific act, the 'The Hire of Immovable Property for Commerce and Industry by Aliens Act B.E. 2542'. This act only applies when the conditions under this act are met (a considerable investment and remittance into Thailand), if not, hire of immovable property for commerce and industry by foreigners is governed by the section 'Hire of Property' in the civil and commercial Code.
Tags: land law
, contract law
, real estate law